U.S. condensate producers seen jumping on export bandwagon

7/15/2014

U.S. condensate producers seen jumping on export bandwagon

LYNN DOAN

WASHINGTON, D.C. (Bloomberg) -- Enterprise Products Partners LP and Pioneer Natural Resources Co., two of the first fuel suppliers to win approval to send U.S. condensates abroad, may be about to get some company.

Less than a month after Enterprise and Pioneer said they received approval to export processed condensate, others are seeking the same permission, said Jacob Dweck, a partner at the law firm Sutherland Asbill & Brennan LLP, who represented Enterprise in its request to the U.S. Commerce Department. Dweck declined to identify the companies or say how many there were. The U.S. has prohibited most crude exports since 1975. Exports of products such as gasoline and diesel are legal.

Condensates are ultra-light hydrocarbons that are gaseous when extracted from oil and natural gas reservoirs. Exports may ease a glut of crude created by a boom in output from hydraulic fracturing and horizontal drilling in shale formations. U.S. crude production rose to 8.5 MMbpd in the week to July 4, the highest since 1986, according to Energy Information Administration data. Crude stockpiles climbed to a record on the U.S. Gulf Coast earlier this year.

The Commerce Department confirmed that condensate, “once distilled, is no longer crude oil” and can be exported, Dweck said July 14 at the 2014 EIA Energy Conference in Washington.

West Texas Intermediate crude, the U.S. benchmark, jumped as much as 1.4% on June 25 after Pioneer and Enterprise said they won approval for the exports. WTI’s discount to European benchmark Brent crude narrowed to $5.56 a barrel on the ICE Futures Europe exchange in London at 10:42 a.m., from $8.43 a barrel on June 24.

The market overreacted “in viewing these rulings as a significant policy change” by the Obama administration, Dweck said.

‘We Asked’

“The ruling was issued because we asked for it, and we happened to ask first,” he said. The agency “made its decision with a full deck.”

The Commerce Department will probably keep considering requests on a case-by-case basis, Dweck said, because it must study each company’s distillation processes and condensate streams.

“It would be hard to issue guidelines that somehow cover all these condensates and processing methodologies,” he said.

About 750,000 bopd produced from U.S. shale plays is condensate, according to Wood Mackenzie Ltd.

Condensate exports from the U.S. may shrink the discount for Light Louisiana Sweet crude in the Gulf Coast by $1 to $2 a barrel versus Brent, John Auers, executive V.P. at Turner, Mason & Co., said at the conference July 14.

“I can’t see, with that kind of environment, that domestic-international discounts can blow out like one time I thought they could have,” Auers said.

Asia will probably be the biggest market for U.S. condensates, Auers said, and South America may want them to blend with heavy bitumen.